Economic Roadkill

Why the Fed's Consumer Credit Report is Rotten to the Core

by MIKE WHITNEY

If you really want to know what’s going on with the economy,  you should take a look at the Fed’s Consumer Credit Report that was released on Thursday. Yes, it’s a real snoozer, but it does reveal the truth behind all the “recovery” hype. So, let’s cut to the chase: When unemployment is high and wages are stagnant, the only way the economy can grow is through credit expansion. That’s why economists pay so much attention to the credit report, because it lets them see if we’re making progress or not. Right now, we’re not making any headway at all. Of course, the cheerleading media see things differently. Here’s a clip from an article in Bloomberg that puts a positive spin on a truly dismal report:

“Credit increased $12 billion after a revised $11.3 billion rise in June, the Federal Reserve said today in Washington. Economists projected a $6 billion gain, according to the median forecast in a Bloomberg News survey. The rise in non-revolving loans was the most since November 2001.” (“U.S. Consumer Borrowing Rose by $12 Billion in July, Twice Amount Forecast”, Bloomberg)

Hooray!  The US consumer is off the canvas and borrowing again. Let the celebration begin!


Not so fast. The uptick in credit spending is entirely attributable to subprime auto loans and government-backed student loans, both of which are a mere extension of the same Ponzi-finance scam that put the global economy into cardiac arrest. Every other area of credit expansion is on-the-ropes. Commercial banks, finance companies, credit unions, savings institutions, nonfinancial businesses, and pools of securitized assets are all flatlining. No progress at all. In other words, the only way to induce tightfisted consumers to spend money they don’t have is by either seducing them with “No-down, easy-pay, 60-month-no-interest” financing or by hoodwinking them about the 6-figure income they’ll net after they finish their college education at Lunkhead U.

Case in point; check out this article on subprime auto loans in Reuters:

“Lenders are making more subprime auto loans again, reversing the cautious approach they adopted after the credit crisis, an industry research firm said on Tuesday. The portion of car loans made to subprime borrowers rose to 40.8 percent in the second quarter from 37.2 percent a year earlier, according to Experian Automotive, a unit of credit bureau and research firm Experian Plc.

The data shows how keen lenders are to boost their loan books amid a sluggish economy….

Average credit scores for borrowers declined and the average term for their loans extended by one month to 63 months on new cars and 59 months on used cars, according to Experian.

“We are continuing to see growth in subprime, both new and used, and loans are becoming looser,” Melinda Zabritski, director of automotive credit for Experian, said in an interview.

Executives at Ally Financial said in May that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. Making the loans is part of Ally’s strategy to grow by lending on more used cars….

Industry veterans have said that while the loans have been attractive recently, more lenders are entering the market and competing for business by lowering prices, a trend that could lead to higher losses in the future.” (“Lenders making more subprime car loans: report”, Reuters)

Bigger profits off lower credit scores. Now where have we heard that load of malarkey before?


Can you believe it? I mean, we haven’t even paid for the last subprime meltdown, and we’re on to the next? Do you think a little regulation might be a good idea here, like maybe some standardized loans so the banksters running these loan-laundering operations don’t blow up the system again and come around begging for more bailouts?


Oh no, of course not. That would be an intrusion on the divine workings of the free market.


Bottom line: Yes, it is possible to boost credit if one is willing to lend gobs of money to anyone who can fog a mirror, but is that really an indication of “economic recovery” or just more proof that the system is staggeringly out-of-whack?


And then there’s the student loan biz, as big a fleecing operation as ever existed. This is where the real pros hang-out now, luring their prey with promises of hefty salaries after they graduate and then loading them up with enough debt to make their eyes pop out.   But, hey, let’s not forget the upside of all this chicanery; all that fleecing beefs up the Fed’s Credit Report and makes it look like the economy is bouncing back. That’s got to be worth something, right? And, besides, everyone is “doing it”; fleecing college kids, that is. Here’s an excerpt from an article in The Atlantic:

“How do colleges manage it? Kenyon has erected a $70 million sports palace featuring a 20-lane olympic pool. Stanford’s professors now get paid sabbaticals every fourth year, handing them $115,000 for not teaching. Vanderbilt pays its president $2.4 million. Alumni gifts and endowment earnings help with the costs. But a major source is tuition payments, which at private schools are breaking the $40,000 barrier, more than many families earn. Sadly, there’s more to the story. Most students have to take out loans to remit what colleges demand. At colleges lacking rich endowments, budgeting is based on turning a generation of young people into debtors.

As this semester begins, college loans are nearing the $1 trillion mark, more than what all households owe on their credit cards. Fully two-thirds of our undergraduates have gone into debt, many from middle class families, who in the past paid for much of college from savings. The College Board likes to say that the average debt is “only” $27,650. What the Board doesn’t say is that when personal circumstances go wrong, as can happen in a recession, interest, late payment penalties, and other charges can bring the tab up to $100,000. Those going on to graduate school, as upwards of half will, can end up facing twice that.”  (“The Debt Crisis at American Colleges,” The Atlantic)

Do you think these pillars of rectitude would ever dream of warning our kids that they might they might be getting in-over-their-heads, that they might want to reconsider what they’re doing so they don’t spend the rest of their lives trying to get out of the red?


Nah. It’s not my problem, they figure. Besides why rock the boat. If these kids ever figure out that they just flushed $100,000 down the latrine for a mid-level management job at Herfy’s that pays $22K per year with no-time-off, they might just go ape and torch our lovely new sports pavilion. We can’t have that, now can we?

Here’s more from another article in The Atlantic:

“Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

How does the housing bubble debt compare? If you add together mortgages and revolving home equity, then from the first quarter of 1999 to when housing-related debt peaked in the third quarter of 2008, the sum increased from $3.28 trillion to $9.98 trillion. Over this period, housing-related debt had increased threefold. Meanwhile, over the entire period shown on the chart, the balance of student loans grew by more than 6x. The growth of student loans has been twice as steep — and it’s showing no signs of slowing.

Obviously the number of students didn’t grow by 511%. So why are education loans growing so rapidly? One reason could be availability. The government’s backing lets credit to students flow very freely. And as the article from yesterday noted, universities are raising tuition aggressively since students are willing to pay more through those loans.

All this college debt could put the U.S. on a slower growth path in the years to come. As Americans grapple with high student loan payments for the first few decades of their adult lives, they’ll have less money to spend and invest. All that money flowing into colleges and universities is being funneled away from other industries where it would have been spent in future years. Of course, this would be a rather unfortunate irony: higher education is supposed to enhance a nation’s growth, but with such an enormous debt burden, graduates might not be able to spend and invest enough to allow that growth to occur.” (“Chart of the Day: Student Loans Have Grown 511% Since 1999″, The Atlantic)

Anyway, you get the picture. Young people are just the latest subset of victims in Big Capital’s endless search for roadkill. No sense getting all huffy about it. But it does help to shed a little light on underlying condition of the economy vis a vis the Fed’s Credit Report.


Indeed, credit is expanding, but only in the areas where the sinister lifting of consumer protections (deregulation) has allowed finance vultures to do their dirtywork. As for the economy, it still stinks. But, then, you already knew that.

Moody's Staffer: We Were Pressured To Give Glowing Ratings To Derivatives

August 20, 2011 02:00 PM
Former Moody's Staffer Blows The Whistle

By Susie Madrak 

 

Anyone with half a brain knows that the ratings agencies (and not just Moody's) were deeply involved in covering up the whole industry built around toxic derivatives. My question, as always, is: What is anyone going to do about it? Is anyone at the top of this crappy pyramid scheme ever going to jail?

WASHINGTON (Reuters) - An ex-Moody's Corp derivatives analyst said the credit-rating agency intimidated and pressured analysts to issue glowing ratings of toxic complex, structured mortgage securities.

In a 78-page letter to the Securities and Exchange Commission, William Harrington outlined how the committees that make the ratings decisions are not independent and how managers often intimidated analysts.

"The management of Moody's, the management of Moody's Corporation and the board of Moody's Corporation are squarely responsible for the poor quality of previous Moody's opinions that ushered in the financial crisis," he wrote.

"The track record of management influence in committees speaks for itself -- it produced hollowed-out (collateralized debt obligation) opinions that were at great odds with the private opinions of committees and which were not durable for even a short period after publication," he added.

Harrington's August 8 letter, which was sent in response to a 517-page proposal by the SEC on credit-rating regulations, raises similar issues that are already at the heart of a Justice Department probe into McGraw-Hill's Standard & Poor's.

"We cannot emphasize strongly enough the importance Moody's places on the quality of our ratings and the integrity of our ratings process," said Moody's Corp spokesman Michael Adler. "For that very reason, we have robust protections in place to separate the commercial and analytical aspects of our business, and our ratings are assigned by a committee -- not by any individual analyst."

The Justice Department has been looking into what S&P analysts wanted to do with ratings during the financial crisis, and what they were told to do, according to one source familiar with the matter.

What the S&P Downgrade Really Means

The S&P Downgrade
By PAUL CRAIG ROBERTS

On Friday, August 5, the credit rating agency, Standard & Poors, downgraded US debt from AAA to AA+.

Gerald Celente’s view that S&P’s downgrade of the US Treasury’s credit rating reflects a loss of confidence in the political system was confirmed by the rating agency itself.

S&P explained the downgrade as the result of heightened political risks, not economic ones. The game of chicken over the debt ceiling increase and the GOP’s ability to block tax increases indicate that “America’s governance and policymaking is becoming less stable, less effective, and less predictable”

The reduction in the government’s credit rating to AA+ from AAA is a cosmetic change. It remains a very high investment grade rating and is unlikely to have any effect on interest rates. It is revealing that despite the downgrade, US bond prices rose. It was stocks that fell. The financial press is blaming the stock market decline on the bond downgrade. However, stocks are falling because the economy is falling. Too many jobs have been moved offshore.

Interest rates could fall further as investors flee into Treasuries from the euro because of sovereign debt worries, flee equity markets as they continue to tumble, and as large banks charge depositors for holding their cash. Indeed, the latter policy could be seen as an effort to drive people with large cash holdings out of cash into government bonds. Japan has a lower credit rating than the US and has even lower interest rates.

More hard knocks are on their way. As the economy weakens and the economic outlook darkens, new deficit projections will elevate the debt issue.

The psychological effect of the S&P’s downgrade is likely to be larger than its economic effect. Many will see the downgrade as an indication that America is beginning to slip, that the country might be entering its decline.

There is no danger of the US defaulting on its bonds. The bonds are denominated in US dollars, and dollars can be created without limit. Moreover, the problem with the debt is less with the size of the national debt, which remains a lower percentage of GDP than during World War II, than with the large annual budget deficits. If equities continue to fall, if flight continues from the euro, if bank fees drive people out of cash, it is possible that the inflows into Treasuries can finance, for awhile, the large annual deficit, removing the need for the Federal Reserve to monetize the deficit via Quantitative Easing.

On the other hand, the weakening economy, given traditional policy views, will likely lead to a renewal of debt monetization or QE in an effort to stimulate the economy.

Continued debt monetization threatens the dollar. Investors will move out of Treasuries and all dollar-denominated assets not because they fear default, but because they fear a fall in the dollar’s exchange value and, thus, a fall in the value of their dollar holdings.

Debt monetization can cause domestic inflation (and imported inflation for those countries that peg to the dollar) as, and if, the new money finds its way into the economy. This has not happened to any extent so far in the US, because the banks are not lending and consumers are too indebted to borrow. But the fall in the dollar’s exchange value results in higher prices of many imports. So far the inflation that the US is experiencing is coming from the declining exchange value of the dollar. However, there is little doubt that asset prices, such as those of Treasuries and stocks, have been inflated by the Fed’s monetization of debt.

To flee from the dollar, there must be someplace to go. There are not alternative currencies large enough to absorb the dollars, especially with China pegged to the dollar and the euro experiencing troubles of its own because of the sovereign debt crises in Greece, Spain, Ireland, Portugal, and Italy. Dollar flight has driven up the prices of bullion and Swiss francs. Despite the Swiss government printing francs to absorb the dollar inflow, the franc continues to rise in value. As of time of writing, one US dollar is worth only about 76 Swiss centimes or cents. In 1966 there were 4.2 Swiss francs to the dollar or 420 centimes to the dollar.

The rise in the franc is crippling Switzerland’s ability to export. The loss in the dollar’s exchange value from dollar creation causes other countries, such as Japan and Switzerland to inflate their own currencies in order to hold down their rise. The Fed’s dollar policy has resulted in Russian leader Putin declaring the US to be a parasite upon the world and the Chinese to call for other countries to control how many dollars can be printed.

In other words, the US policy is seen as adversely impacting other countries without doing any good for America.

What I have explained can be comprehended within existing ways of thinking. Within this way of thinking, as the debt ceiling imbroglio made clear, the policy choices are between eliminating Social Security and Medicare or eliminating wars and low tax rates on the mega-rich in order to eliminate the annual budget deficits that are threatening the dollar’s exchange value and enlarging the national debt.

However, it is often the case that more is going on than traditional thinking can know about or explain. It is always a challenge to get people’s thinking into a new paradigm.
Nevertheless, unless the effort is made, people might never comprehend the behind-the-scenes power struggle.

A half century ago President Eisenhower in his farewell address warned the American people of the danger posed to democracy and the people’s control over their government by the military/security complex. Anyone can google his speech and read his stark warning.

Unfortunately, caught up in the Cold War with the Soviet Union and reassured by America’s rising economic might, neither public nor politicians paid any attention to our five-star general president’s warning.

In the succeeding half century the military/security complex became ever more powerful. The main power rival was Wall Street, which controls finance and money and is skilled at advancing its interests through economic policy arguments. With the financial deregulation that began during the Clinton presidency, Wall Street became all powerful. Wall Street controls the Treasury and the Federal Reserve, and the levers of money are more powerful than the levers of armaments. Moreover, Wall Street is better at intrigue than the CIA.

The behind the scenes fight for power is between these two powerful interest groups. America’s hegemony over the world is financial, not military. The military/security complex’s attempt to catch up is endangering the dollar and US financial hegemony.

The country has been at war for a decade, running up enormous bills that have enriched the military/security complex. Wall Street’s profits ran even higher. However, by achieving what economist Michael Hudson calls the “financialization of the economy,” the financial sector over-reached. The enormous sums represented by financial instruments are many times larger than the real economy on which they are based. When financial claims dwarf the size of the underlying real economy, massive instability is present.

Aware of its predicament, Wall Street has sent a shot across the bow with the S&P’s downgrade of the US credit rating. Spending must be reined in, and the only obvious chunk of spending that can be cut without throwing millions of Americans into the streets is the wars.

Credit rating agencies are creatures of Wall Street. Just as they did Wall Street’s bidding in assigning investment grade ratings to derivative junk, they will do Wall Street’s bidding in downgrading the US credit rating. Wall Street might complain about downgradings, but that is just to disguise that Wall Street is calling the shots.

The struggle between the military/security complex and the financial sector comes down to a struggle over patronage. The military/security complex’s patronage network is built upon armaments factories and workforces, military bases and military families, military contractors, private security firms, intelligence agencies, Homeland Security, federalized state and local police, and journalists who cover the defense sector.

Wall Street’s network includes investors, speculators, people with mortgages, car, student, and business loans, credit cards, real estate, insurance companies, pension funds, money managers and their clients, and financial journalists.

As the financial sector has over-extended and must shrink, Wall Street is determined to have access to public funds to manage the process and determined to maintain its relative power by forcing shrinkage in its competitor’s network. That means closing down the expensive wars in order to free up funds for entitlement privatization and to keep the dollar’s role as reserve currency. Wall Street realizes that if the dollar goes, its power goes with it.

What insights can we draw from this analysis?

The insight that it offers is that although economic policy will continue to be discussed in terms of employment, inflation, deficits, and national debt, the policies that are implemented will reflect the interests of the two contending power centers. Their struggle for supremacy could destroy the rest of us.

Wall Street opened the game with a debt downgrade, implying more are to come unless action is taken. The new Pentagon chief replied that any cuts to the military budget would be a “doomsday mechanism” that “would do real damage to our security, our troops and their families and our military’s ability to protect the nation.”

Will Americans be so afraid of terrorists that they will give up their entitlements? Will false flag terrorist events be perpetrated in order to elevate this fear? Will Wall Street provoke crises that are perceived as a greater threat?

From whom do we need greater protection than from Wall Street and the military/security complex and from our government, which is the tool of both?

S&P head: Agency may downgrade U.S. again

By David Edwards - RAW Story
Sunday, August 7th, 2011

The head of Standard & Poor's sovereign ratings said Sunday that the agency may downgrade the U.S. again.

"Given the economic and political situation in the U.S., which will we see, an upgrading back to AAA or further downgrades?" Fox News' Chris Wallace asked David Beers.

"We have a negative outlook on the rating and that means we think that the risk currently for the rating are to the downside," Beers said.

While explaining what the U.S. could do to get its AAA rating back, the S&P official mentioned entitlement cuts but ignored the agency's call to raise revenues.

"Does any compromise have to have entitlement reform and revenue increases to be credible?" Wallace wondered.

"The key thing is, yes, entitlement reform is important because entitlement is the biggest -- are the biggest component of spending and they are the part of spending where the cost pressures are greatest," Beers replied.

"The White House as you know is not happy with this decision and they have accused S&P of amateurism. They went through your numbers and found a $2 trillion overstatement of what the debt would be and when they pointed that out to you, you simply changed the rational and continued to downgrade the debt," Wallace noted.

"That is a complete misrepresentation of what happened," Beers claimed. "Here we are talking about highly technical assumptions about projecting budget base lines far in the future. We made the motifications that we did after a conversation with the Treasury, it doesn't change the fact that in our estimation, that even with the agreement of Congress and the administration this past week, that the underlying debt burden of the U.S. government is rising and will continue to rise, most likely, over the next decade."

"The haste with which S&P changed its principal rationale for action when presented with this error raise[s] fundamental questions about the credibility and integrity of S&P's ratings action," Treasury assistant secretary for economic policy John Bellows wrote last week.

White House chief economic adviser Gene Sperling added that S&P's actions "smacked of an institution starting with a conclusion and shaping any arguments to fit it."

"The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking," he said.
Beers told Wallace that he did not expect "that much impact" from the downgrade when the global markets open on Monday.

Watch this video from Fox's Fox News Sunday, broadcast Aug. 7, 2011.

Second U.S. recession could be worse than the first

(Call it what it is...the beginning of a depression. If we used math instead of some 9 member panel of economists, the math would show we are 3 years into a depression. That panel of economists says we're in a recovery--HA!--jef)

By Kase Wickman - RAW Story
Sunday, August 7th, 2011

A second recession, what many are calling the double-dip recession, could be on its way, economists warn. And should it come, it will probably be even more devastating than the previous period of economic woe. 

“It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” Conrad DeQuadros, senior economist at RDQ Economics, told the New York Times.

The Standard and Poor's downgrade of the U.S.'s credit rating bodes ill for the world's financial markets as well as the domestic market.

President Barack Obama, once the debt deal with Congress to avoid a debt default was struck, announced a pivot to focus on jobs.

"I'll continue also to fight for what the American people care most about: new jobs, higher wages and faster economic growth," Obama said in a statement to press after the debt deal was passed last week.

While the working age population has grown 3 percent in the past four years, the economy has 5 percent fewer jobs -- or 6.8 million less than four years ago. The U3 Unemployment rate stands at 9.1 percent.

Economists don't think another stimulus package will do the trick, either.

“There are only so many times the Fed can pull this same rabbit out of its hat,” Torsten Slok, the chief international economist at Deutsche Bank, told the Times.

Downgraded Anyway...( 3 articles)

Sunday, August 7, 2011 by Richard D. Wolff
The S&P Downgrade of US Debt: What it Means
by Richard Wolff

 

Much verbiage is piling up on this issue. Yet, it matters little that the two other giant rating agencies did not downgrade US debt as S&P did. It is likewise unimportant that all those agencies deserve the bad reputations won when their over-rating of securities burst in the collapse of 2007 and took an already unbalanced economy into deep recession. Nor does the downgrade impose major cash costs anytime soon.

The S&P downgrade is important because it clarifies and underscores two key dimensions of today’s economic reality that most commentators have ignored or downplayed. The first dimension concerns exactly why the US national debt is rising fast. There are three major reasons for this:

(1) major tax cuts especially on corporations and the rich since the 1970s and especially since 2000 have reduced revenues flowing into Washington,
(2) costly global wars especially since 2000 have increased government spending dramatically, and
(3) costly bailouts of dysfunctional banks, insurance companies, large corporations and the economic system generally since 2007 have likewise sharply expanded government spending. 

With less tax revenue coming in from corporations and the rich and more spending on defense/wars and bailouts, the government had to borrow the difference. Duh!

The second dimension concerns the “deal” just agreed between President Obama and the Republicans in Congress. That deal promises further major increases in the national debt in the years ahead. That is because it does not alter any of the three major debt causes listed above. The political theatrics of the two parties reflect the money/power of the corporations and the rich, keeping their tax cuts, subsidies, and government orders untouched. Instead, the two parties pretend concern about the debt, debate only how much to cut government spending on the people, and focus on the 2012 election.

S&P downgraded the US national debt because these economic and political dimensions of the US today guarantee a worsening of the nation's debt. Thus, a basically political problem is looming for those lenders who purchased and now own the debt obligations of the US (i.e. Treasury securities). The political problem is this: how long will the mass of Americans accept not only an economic crisis bringing unemployment, home foreclosures, reduced real wages and job benefits, but now also cutbacks in government supports? When will the political backlash explode and how badly may it impact the creditors of the US?

When might that backlash demand that the people’s taxes stop going to pay off creditors (corporations, the rich, and foreigners) and be used instead for public services that the people need? Exactly that political danger for creditors prompted the rating downgrades for the debts of Greece, Portugal, etc. The same danger has now reached our shores and confronts our nation'a creditors.

S&P decided – for reasons good and bad, noble and venal – to say what any reasonable observer knows (given that such backlashes hurting creditors have often happened in recent history). Creditors need to worry about the combination of economic crisis, growing inequalities of wealth, income and power, and political dysfunction that now defines the US. The risks of backlash against creditors rise with the national debt. Not to worry is irrational and dangerous for them. And for us?

 ++++++++++++++

Saturday, August 6, 2011 by Huffington Post
How to Think About Standard and Poor's Downgrade
by Dean Baker

 

Standard and Poor's downgrade of U.S. government debt captured headlines across the country and around the world. It is a newsworthy event, but primarily as another colossal failure by a major credit rating agency.

First, it is worth mentioning the important background here. S&P, along with the other credit rating agencies, rated hundreds of billions of dollars of subprime mortgage backed securities as investment grade. They were paid tens of millions of dollar by the investment banks for these ratings. We know that concerns were raised by their own people about the quality of many of these issues. This was at the least astoundingly incompetent. It was quite possibly criminal.

This raises the question of whether S&P fears an investigation and possible prosecution. In such circumstances the desire to curry favor with powerful politicians could certainly influence their credit rating decisions. There are also rules affecting the credit rating agencies in the Dodd-Frank financial reform bill. The desire to have these rules written in a favorable way could affect the credit rating agencies' decisions. It would be nice if we could just assume that the credit rating agencies make their rulings on an objective assessment of the evidence, but we can't.

Let's look at the evidence. S&P made a big point of citing the fact that the debt deal did almost nothing to slow the growth of Medicare and other entitlements, obviously alluding to Social Security. S&P surely knows that Medicare's cost growth is driven by projections of explosive growth in private sector health care costs. The projections it relies upon from the Congressional Budget Office show that the cost of providing health care to an average 65 year-old in the private sector will be almost $20,000 (in 2011 dollars) a year by 2030. Of course, this will make Medicare unaffordable if it proves true, but this projected explosion in health care costs will be devastating for the U.S. economy even if we eliminated Medicare and other public sector health care programs altogether.

If S&P were being honest, it would have written about the need to fix the U.S. health care system. Instead it talked about the need to cut Medicare. Of course, if U.S. health care costs were comparable to those in any other country in the world, then we would be looking at massive surpluses in the long-term, not deficits.

The reference to Social Security also cannot be supported. The program is financed by its own designated tax. Under the law, if benefits exceed the money raised by the tax, then they are not paid. If S&P assumes that Social Security will add to the deficit in future years, then they are assuming that Congress will change the law in a way that no one is now proposing.

It is also worth noting that the projected increase in Social Security as a share of GDP over the next 30 years is 1.6 percent. This is roughly the same as the increase in the annual military budget since the days before September 11th. An unbiased credit rating agency would not be highlighting one increase while ignoring the other.

There are other problems with the S&P downgrade. U.S. government debt and its derivatives (e.g. the $5 trillion of mortgage backed securities issued by Fannie Mae and Freddie Mac) are the backbone of the U.S. financial system and indeed the world financial system. If U.S. debt is in fact less creditworthy, then all the banks and financial companies that rely on its value should also be less creditworthy. Yet, we didn't hear of J.P. Morgan, Goldman Sachs and the rest being put on the watch list for a downgrade. Why not? Perhaps this is because S&P doesn't take its own rating seriously.

Finally, what does the risk of default on U.S. government debt mean? The debt is issued in dollars. That means it is payable in dollars. The U.S. government prints dollars. This means that if some reasons the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid. (Of course if they are worried that inflation will erode the value of U.S. debt, S&P would also have to downgrade all debt denominated in dollars everywhere in the world.)

In short, there is no coherent explanation that can be given for S&P's downgrade. This downgrade was not made based on the economics. We can only speculate about the true motive.

+++++++++++++++

Saturday, August 6, 2011 by The New York Times

S&P and the USA: Right's 'Madness' and Agency's Ineptitude Led to Downgrade

by Paul Krugman 

NEW YORK - OK, so Standard and Poors has gone ahead with the threatened downgrade. It’s a strange situation.
 
On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

So this is an outrage — not because America is A-OK, but because these people are in no position to pass judgment.

Manufacturing a Double-Dip Recession

(Crooked, clueless or both. There's no way these are smart honest politicians legislating with the people in mind. No way.--jef) 

Congress and Obama are Making Things Worse
By DAVE LINDORFF

The chief economist at ratings agency Moodys is warning that the U.S. could be headed for a renewed recession.

Calling the current situation "very perilous," John Lonski adds that the politicians in Washington, where both parties are vying to present budgets featuring massive cuts in spending, could help bring on that recession--just as the new Conservative Party-led government in Great Britain brought on a return to recession this year through its aggressive cutting of public spending. Worse yet, they could create a new shut-down in credit or "liquidity" in the financial industry that "could be more serious even than what caused the collapse of Lehman Brothers" in 2008.

Lonski, in an interview with ThisCantBeHappening!, said, "What scares me is that, because of the weakened condition of the federal government, there is less confidence in the philosophy of `too big to fail'-- the idea that the government will come in and back up any financial company that runs into trouble." He said the government is probably no longer in a position to make trillions of dollars available to prop up failing big banks as it did in 2008 and 2009, and that fearing this, financial institutions may pull back, drying up lending.

Lonski and his colleague Ben Garber, another economist at Moody's Capital Markets Research Group, today released a new report titled "Double Dip Risk Rises as DC Standoff Continues," in which they warn that the U.S. "may be closer to a double dip recession than commonly thought."

The two men note that the US economy "continues to soften," and say that evidence is "proving elusive" of any recovery in the second half of of this year. And that's "assuming a reasonable resolution of the debt standoff" between Republicans and Democrats in Washington, and increasingly even among Republicans themselves.

"Even with a market-friendly resolution of the debt standoff," they write, "a double-dip recession is far from unlikely."

The new Moody's report comes out on the same day as new data from the U.S. Commerce Department, which is also alarming. The new government data show that growth in the last quarter of 2010 was actually running at only a 2.3% annual rate, not the more robust 3.1% rate initially reported. Annualized growth rates for the first and second quarters of this year were also revised downward by the Commerce Dept. to 0.4% and 1.3% respectively. Ryan Sweet, a senior economist at Moody's Analytics says, "The economy essentially came to a grinding halt in the first half of the year."

Of course, the over 20% of Americans who are out of work or who are working part-time because they cannot find full-time jobs, and the millions who have been out of work for so long that their unemployment compensation checks have been exhausted, already knew this. They've been in a recession ever since 2007, and they represent one in five of American workers. The 40 million living on Food Stamps or going hungry--almost one-seventh of all Americans, also knew this.

It is getting hard to find any good economic news, write Lonski and Garber, especially with regional manufacturing statistics "hinting of stagnation," and with housing markets still unable to "find a bottom."

They two economists note that the Chicago Federal Reserve's National Activity Index (CFNAI), in its latest three-month moving average for the last quarter, registered a figure of -0.60. They warn that 5 out of the last 9 times that the CFNAI fell that low, "recession was often impending, or was already present."

The U.S. cannot expect much help this time from the rest of the world, either, because which most other countries are experiencing a slowdown in growth, though not as severe as the U.S.

Many economists, and not just those on the left, worry that politicians in Washington from both the Republican and Democratic Parties, focused as they are now in competitive cutting of the budget deficit, could make things worse.

As Lonski says, "Even [Fed Chairman] Ben Bernanke has said it's very important not to bring on budget cuts until we can be reasonably certain that the U.S. economy is self-sustaining."

These days, in what Lonski calls a "political theater," many politicians, as well as President Obama, are calling for immediate cuts in social spending programs like Social Security, Medicaid, Welfare, Education, etc., but Lonski warns, "The problem with the U.S. budget is not what is being spent now," but what is being spent over the longer term.

The irony, he noted, is that if government inaction on raising the debt ceiling, or government action in the form of overly-aggressive near-term budget cutting, helped usher in a double-dip recession, it would have the perverse effect of just worsening the debt, as tax receipts would plunge.

An Economy Destroyed

The Enemy is Washington
By PAUL CRAIG ROBERTS

Recently, the bond rating agencies that gave junk derivatives triple-A ratings threatened to downgrade US Treasury bonds if the White House and Congress did not reach a deficit reduction deal and debt ceiling increase. The downgrade threat is not credible, and neither is the default threat. Both are make-believe crises that are being hyped in order to force cutbacks in Medicare, Medicaid, and Social Security.

If the rating agencies downgraded Treasuries, the company executives would be arrested for the fraudulent ratings that they gave to the junk that Wall Street peddled to the rest of the world. The companies would be destroyed and their ratings discredited. The US government will never default on its bonds, because the bonds, unlike those of Greece, Spain, and Ireland, are payable in its own currency. Regardless of whether the debt ceiling is raised, the Federal Reserve will continue to purchase the Treasury’s debt. If Goldman Sachs is too big to fail, then so is the US government.

There is no budget focus on the illegal wars and military occupations that the US government has underway in at least six countries or the 66-year old US occupations of Japan and Germany and the ring of military bases being constructed around Russia.

The total military/security budget is in the vicinity of $1.1-$1.2 trillion, or 70 per cent -75 per cent of the federal budget deficit.

In contrast, Social Security is solvent. Medicare expenditures are coming close to exceeding the 2.3 per cent payroll tax that funds Medicare, but it is dishonest for politicians and pundits to blame the US budget deficit on “entitlement programs.”

Entitlements are funded with a payroll tax. Wars are not funded. The criminal Bush regime lied to Americans and claimed that the Iraq war would only cost $70 billion at the most and would be paid for with Iraq oil revenues. When Bush’s chief economic advisor, Larry Lindsay, said the Iraq invasion would cost $200 billion, Bush fired him. In fact, Lindsay was off by a factor of 20. Economic and budget experts have calculated that the Iraq and Afghanistan wars have consumed $4,000 billion in out-of-pocket and already incurred future costs. In other words, the ongoing wars and occupations have already eaten up the $4 trillion by which Obama hopes to cut federal spending over the next ten years. Bomb now, pay later.

As taxing the rich is not part of the political solution, the focus is on rewarding the insurance companies by privatizing Medicare at some future date with government subsidized insurance premiums, by capping Medicaid, and by loading the diminishing middle class with additional Social Security tax.

Washington’s priorities and those of its presstitutes could not be clearer. President Obama, like George W. Bush before him, both parties in Congress, the print and TV media, and National Public Radio have made it clear that war is a far more important priority than health care and old age pensions for Americans.

The American people and their wants and needs are not represented in Washington. Washington serves powerful interest groups, such as the military/security complex, Wall Street and the banksters, agribusiness, the oil companies, the insurance companies, pharmaceuticals, and the mining and timber industries. Washington endows these interests with excess profits by committing war crimes and terrorizing foreign populations with bombs, drones, and invasions, by deregulating the financial sector and bailing it out of its greed-driven mistakes after it has stolen Americans’ pensions, homes, and jobs, by refusing to protect the land, air, water, oceans and wildlife from polluters and despoilers, and by constructing a health care system with the highest costs and highest profits in the world.

The way to reduce health care costs is to take out gobs of costs and profits with a single payer system. A private health care system can continue to operate alongside for those who can afford it.

The way to get the budget under control is to stop the gratuitous hegemonic wars, wars that will end in a nuclear confrontation.

The US economy is in a deepening recession from which recovery is not possible, because American middle class jobs in manufacturing and professional services have been offshored and given to foreigners. US GDP, consumer purchasing power, and tax base have been handed over to China, India, and Indonesia in order that Wall Street, shareholders, and corporate CEOs can earn more.

When the goods and services produced offshore come back into America, they arrive as imports. The trade balance worsens, the US dollar declines further in exchange value, and prices rise for Americans, whose incomes are stagnant or falling.

This is economic destruction. It always occurs when an oligarchy seizes control of a government. The short-run profits of the powerful are maximized at the expense of the viability of the economy.

The US economy is driven by consumer demand, but with 22.3 per cent unemployment, stagnant and declining wages and salaries, and consumer debt burdens so high that consumers cannot borrow to spend, there is nothing to drive the economy.

Washington’s response to this dilemma is to increase the austerity! Cutting back Medicare, Medicaid, and Social Security, forcing down wages by destroying unions and offshoring jobs (which results in a labor surplus and lower wages), and driving up the prices of food and energy by depreciating the dollar further erodes consumer purchasing power. The Federal Reserve can print money to rescue the crooked financial institutions, but it cannot rescue the American consumer.

As a final point, confront the fact that you are even lied to about “deficit reduction.” Even if Obama gets his $4 trillion “deficit reduction” over the next decade, it does not mean that the current national debt will be $4 trillion less than it currently is. The “reduction” merely means that the growth in the national debt will be $4 trillion less than otherwise. Regardless of any “deficit reduction,” the national debt ten years from now will be much higher than it presently is.

TV ratings in the age of digital TV

Who watches the watchers?

By Mark Slutsky | Ars Technica

This year has seen two major developments in the TV market: 3D and the Web. TV makers are betting that consumers will flock to stores this holiday season to upgrade their plain old 2D and Web-less panels with models that will let them bring the Internet into their living rooms without requiring them to add another box to their entertainment center. In this four-part series on the Future of TV, Ars takes an in-depth look at the major transition that TV is currently undergoing.
 
We take a look at the past, present, and future of TV ratings. How do networks, advertisers, and agencies measure audience sizes in a world of DVRs and BitTorrent? Will DVRing kill your favorite show? 

 
TV used to be so simple. Everyone had the same basic equipment (the only real qualifying factors being whether your set was color or black-and-white, and the size of the screen), and choice of programming was limited to whatever was on one of the three big networks at the exact time you were sitting on the couch, at least for those in the United States.

Boy, have things changed.

Now what we call TV includes everything from the old-school, over-the-air broadcasts, to cable programming, to video-on-demand, to the spiraling variety of video content available online. "Television" as a descriptor has become amorphous, its meaning constantly changing depending on its context. And what's changing even more drastically is the way we watch it; we have more options than ever to watch programming whenever and wherever we want.

That's terrific for consumers, at least on the surface level. But what does it mean for the business of TV—and the future of the programs we love? As common as pay TV is these days, most broadcasting is supported largely by advertising. With viewership fragmented between on-air broadcasts, video-on-demand, Hulu, Netflix, iTunes, and—importantly—illegal downloading, is it possible for networks and producers to get accurate data about who exactly is watching their shows? Are shows with niche appeal losing out because their numbers aren't being counted accurately? We decided to take a look at how the business of TV ratings is changing in the digital age.

The 5000-Channel Universe

Before we get into the sometimes-tricky business of ratings, let's take a look at the fragmented state of television audiences, and how we got here.

In television's real heyday in the 1950s and 1960s, practically all viewers were limited to what they could pick up on their "rabbit ear" antennas, which for the most part meant their local ABC, CBS, or NBC affiliates. It's hard to overstate how incredibly concentrated audiences were at that time. The Beatles' first appearance, on February 9, 1964, was watched in about 22 million households. Compared to a modern-day, big-ticket TV broadcast like American Idol's season nine finale, watched by 16 million households, that doesn't seem like such a big deal, even when you remember that the population of the US was about two-thirds of what it is today. But look at the percentages: 14.2 percent of households watched Idol, while an amazing 60 percent had their TVs tuned to the Fab Four in 1964, a figure that's simply unimaginable today.

Things began to get a little more complex with the widespread adoption of cable, which really took off in the '70s and '80s with the popularity of stations like TBS (Ted Turner's famous "superstation"), CNN and HBO. Widespread adoption of cable, along with both legal and grey-market satellite TV, opened up the "500-channel universe," a term coined by TCI executive John Malone, whose aggressive tactics (Wired called him the "Darth Vader of the Infobahn" in 1994) helped bring hundreds of new channels into American's homes.

The Internet would provide the next comprehensive, disruptive change in the way we watch TV, but it's worth mentioning two other developments that just predated the Internet video explosion by a hair, and which happened about the same time.

But how are Nielsen, and by extension, broadcasters and advertisers, keeping track of what you watch on your computer or download from torrent sites?

The first would be the DVD home video format, born in 1995 but adopted by consumers around the turn of the century. How did DVDs change the way we watch TV? Well, in the long and painful VHS era, people rented a lot of tapes, and they occasionally used them to record TV shows, but the market for actually purchasing movies on VHS was relatively small. In fact, movies were often "priced to rent"—sold for up to $100 for a single movie, and meant to be purchased by video rental stores. That changed with DVD, which were priced to sell to consumers—a smart bet, as for various reasons (size, quality, special features) people were willing to purchase DVDs in droves.

The culture of the DVD had an intriguing and unintentional side-effect on television. With some notable exceptions (like soap operas), TV prior to the DVD was largely single-episode-based—you'd have your rare season-ender cliffhanger or two-parter, but plot arcs were largely stuffed into individual episodes. (Watch an episode of Star Trek: The Next Generation some time and marvel at just how much story they could fit into 42 minutes.) Whether it caused it or not, the mass DVD purchasing phenomenon dovetailed perfectly with the shift towards long-arc stories—plots lasting multiple episodes or even whole seasons—on shows like The Sopranos and 24. DVDs seemed perfect for that kind of entertainment: who hasn't lost whole weekends to bingeing on seasons of Lost or The Wire? As viewers showed they were willing to shell out for whole seasons at a time, programmers surely took note.

The second major shift in the way we watch TV was the introduction of the DVR, or digital video recorder (also called the PVR—the "P" stands for "personal"). Made popular by TiVo, which released its first consumer device in 1999, the DVR allows viewers to do what's known as "timeshifting" in the industry—fancy terminology for "watching it later." You could already timeshift with VHS tapes, but that involved the world's least favorite task and butt of many a punchline, VCR programming. TiVo made it easy to keep track of your favorite shows automatically—even recording them while you watched something else. The technology became so popular, in fact, that TiVo itself became a victim of its own success, and fell by the wayside as cable companies rushed to make their own DVRs. From of a high of 4.418 million subscribers in July, 2006, TiVo reported only 2.272 million in their October 2010 earnings letter.

One of the other real advantages to consumers—but not advertisers or broadcasters—was the ability to fast-forward through commercials. In fact, one TiVo competitor, ReplayTV, offered the ability to skip them entirely, but was stopped by lawsuits from the major networks and removed the feature. But that ability to avoid commercials—one of the big selling points of much (but not all) of the TV you can watch on the Internet—is still an issue today, and as we'll see below, is very much taken account of by the TV ratings people. That's also true of VOD, or video-on-demand, which allows customers to watch stuff whenever without having to even set it up in advance (although Nielsen claims VOD numbers are small enough to be negligible).

The most recent—and most unpredictable—change in TV-watching is, of course, the boom in Internet video. Everything prior to Internet still involved sitting on the couch and looking at the same piece of tech; but now you can watch stuff via the Internet on your laptop, your phone, your tablet, or even… your television. Officially sanctioned stuff plays on sites like Hulu or network websites, albeit without the regular commercials, though some broadcasters are switching to a format called "TV Everywhere" which streams everything—including ads—exactly as it would appear on your TV screen (in your local market) to your computer. Show clips are uploaded to YouTube, with and without official permission. There are Web-only shows and downloadable video podcasts—do we even call that stuff "TV"? And finally, there's the elephant in the room—illegal or questionably legal streaming and downloading, the ultimate in convenience for those who don't want to pay. There are more ways to consume TV content today than ever before. So who's keeping track of it all?

The ratings game

In the middle of the first-season run of his show Louie on FX, comedian, writer, and star Louis CK tweeted (@louisck) "If you want LOUIE (on FX Tues. 11pm) to have a 2nd season, don't DVR, don't HULU. Watch it when it's on." The assumption was, of course, that only "live" TV viewing counts to broadcasters and that Internet viewership can't support a show. Was he right? Well, the answer is a little unclear.

Television ratings as we know them are synonymous with one company—Nielsen, which created the famous "Nielsen ratings" that measure television show's viewership. For broadcasters—and the advertisers who fund them—this is crucial data, determining the desirability, and thus price, of commercial airtime.

Nielsen's most famous methodology is the "diary," in which members of selected households record their viewing habits. Frankly, it's not the most reliable-sounding method, for a variety of reasons; you might forget to keep track of the shows you're watching, you might make mistakes, you might even deliberately keep false data if you'd rather have the ratings guys think you're watching PBS NewsHour than Keeping Up with the Kardashians.

Happily, while the diary system is still used in smaller markets, the national rating system has become much more sophisticated in recent decades. The company still picks a sample of Americans (about 20,000 households in total, totaling around 50,000 people)—not a random group, mind you, but one carefully selected to represent the country's demographics.

Every time a member in a Nielsen household sits in front of their TV, they're instructed to "check in" with the meter the company installs on the set. The meter logs what's being watched—and importantly for advertisers, who's watching it—by keeping track of Nielsen audio codes, silent to human ears, that are encoded in pretty much all programming and repeated every 2.6 seconds. Then, every morning at 3am, that data is sent back to their facility and processed, with the fresh ratings spit out to their clients. The crucial info is the "C3 rating," which measures how much any specific piece of programming has been watched in the three days from when it airs.

The code system allows for extremely granular data collection. For example, if you record a show on your DVR and play it the next day, it will still show up on the C3 rating, even if you didn't watch it "live." And, most importantly to advertisers, every commercial has its own unique code, which allows Nielsen to track whether you're fast-forwarding ads or not (according to the company, DVR users still watch about 45% of the commercials).

And DVR use keeps growing. "DVR penetration is growing dramatically," says Matt O'Grady, Nielsen's Executive Vice President of Media Product Leadership. "The biggest trend we see in TV is timeshifted viewing. In 2006, 6 percent of the TV-viewing country, which is pretty much everybody that's got cable, had a DVR. In 2010, we're almost up to 40 percent."

So that's how it works for the TV in your living room. But how are Nielsen, and by extension, broadcasters and advertisers, keeping track of what you watch on your computer or download from torrent sites? Well, in April Nielsen plans to being tracking what they call "extended screen," services like TV Everywhere. But here's where it gets a little tricky: services like Hulu or Xfinity (and of course, pirated shows) won't be counted in those numbers because they don't show the same commercials as the regular broadcasts. "You can't make up different rules for different screens, unless you want to treat that screen completely independently," O'Grady explains. "So the extended screen definition is, if you want credit for traditional TV—what we call 'commercial credit' or C3 credit—and you want that for your online contribution, then your telecast online has to match what you showed on TV."

"Hulu, Xfinity or NBC.com, whatever the site is, may have lower commercial loads," he continues. "We are committed to measuring that as well, but that moves away from currency, as we say. It moves away from the ability to monetize it just as TV is monetized—but there's great value in it."

It does raise some important questions though—for many, watching TV online is a way to get away from the restrictions (and ads) of the cable model, and TV Everywhere seems like a way to just transplant the current infrastructure online. (It's already getting flack from groups like Free Press, who claim it's anti-competitive.) Whether it will take hold or not among consumers is still in question. If broadcasters make their decisions based on regular and extended screen numbers only, they might not be working with representative data.

So was Louis CK right? Yes and no. If you DVRed episodes of Louie, you probably weren't doing much harm to his show's chances. Whether watching it on Hulu had impact either way is debatable—those numbers won't go to the advertisers that are responsible for most of FX's income, but the broadcaster will be seeing some revenue there. (Either way, someone must have explained that to him, because the tweet was deleted some time later.)

But, it should be added, according to Nielsen's studies (and they don't seem to really have a horse in this race either way), the overwhelming majority of viewing is still done on TVs. "There's a very interesting phenomenon happening in the marketplace, with online video garnering so much attention—and rightfully so, a lot of concern about how people continue to monetize their content on different screens," O'Grady says. "But the majority of the viewing today is still on the principal first screen. When you look at our numbers, for TV vs. online viewing vs. mobile viewing, it's predominantly TV. That makes sense; the 'best available screen' is what we call it, meaning the best viewing experience." Specifically, Nielsen's data shows American viewers each spending on average about 158 hours a month (sounds like a lot, doesn't it?) in front of the TV, with about three to four hours each for online and mobile.

The piracy factor

What Nielsen doesn't—and probably can't—measure is the number of people watching TV via "unofficial" channels online, such as bootleg streaming video sites or p2p file-sharing. "We could probably engineer that, but we're not in the business of doing that. We don't want to be the police," O'Grady says.

And, he adds, "What Nielsen takes very seriously—which you have to in this business—is representative samples. It would be very hard to get a representative sample of people who are readily admitting themselves as viewers of pirated content! [laughs] So I don't know how we'd do that, but you never know how the world's going to change."

One person who does have their eye on those often-murky waters is Ernesto Van Der Sar, the pseudonymous blogger behind torrentfreak.com, whose weekly "Most Pirated" Top 10 lists are reprinted by industry journal The Hollywood Reporter. Van Der Sar's weekly lists mostly focus on films; he used to follow TV on that schedule but now only does round-ups only annually, because, as he says "there were generally only a few small changes from week to week."

Nonetheless he does keep track, albeit with a methodology a little cruder than that of Nielsen's—though given his resources and the data he's working with, that's by necessity. "Public BitTorrent trackers report the number of downloads," he explains. "What we do is poll all of the public trackers we can find every day and collect all the data in a huge database. We then use filters to group similar titles and extract the most downloaded titles at the end of the week. For some trackers that do not report the actual downloads, we use a combination of downloaders and the file size to accurately estimate the number of downloads."

In his year-end roundups (such as this one), Van Der Sar then compares the downloading numbers to Nielsen's. The results vary from show to show; some attract more downloaders than viewers, some quite the opposite. Torrentfreak.com's pick for top-downloaded show last year, Heroes, for example, was downloaded 6,580,000 times, while Nielsen reported 5,900,000 US viewers. Number 10 on the list, True Blood, saw 1,600,000 downloads for its estimated 12,400,000 US watchers.

It does imply a sort of shadow audience; if those numbers are accurate, Heroes was only slightly behind True Blood, despite the latter show's numbers being almost double. But that's not the whole story—it's not accurate to assume these are all US-based viewers who would otherwise be watching Heroes on cable.

"This is a difficult question, because the effect can go both ways," Van Der Sar says. "Piracy might hurt the ratings of a show marginally because people do not watch the episode through official channels, but it is doubtful that these downloaders would have seen the show at all if it weren't for piracy."

And, importantly, he adds, "Most of the downloaders come from outside the US, so these have no impact on US ratings. On the flipside, one could argue that BitTorrent has actually helped TV-shows to build a stronger, broader, and more involved fanbase. People can catch up with a missed episode quite easily, in high-quality video whenever and wherever they want. The rise of unauthorized downloading of TV-shows is a signal that customers want something that is not available through other channels. Availability and convenience seems to be the key issue why people turn to BitTorrent." In other words, the very factors that are driving DVRs and time shifting are underlying piracy as well.

According to Van Der Sar, TV piracy is not necessarily an industry-crippler the way p2p mp3 sharing was for the music industry, but possibly an opportunity in disguise. "I don't think TV networks should be afraid of BitTorrent or piracy in general," he says. "But they shouldn't ignore it either. Piracy is a market signal, an opportunity. If interpreted correctly, TV-networks may hugely benefit from piracy by selling their shows to regions where the demand is highest. On the other hand, if they want piracy to decrease they only have to make their content available in user-friendly format. Hulu already decreased TV piracy in the US significantly, but there's still a lot of work to do, especially outside the US."

Whether that takes the form of region-specific viewing options that duplicate the TV experience completely, like TV Everywhere, or more à la carte options like Hulu, Netflix, iTunes/AppleTV and Xfinity remains to be seen. What's clear though, is that while the audience may be fragmenting, they're after the same thing—the shows they love, in a format that's easy and convenient to watch. That's simple enough, but keeping track of TV viewers' often-fickle desires is more complicated than ever before. And as viewing methods venture more towards the unconventional, broadcasters' methods of tracking their audiences will have to follow.

Glenn Beck's show has lost 1/3 of its TV audience since January

Glenn Beck's show has lost 1/3 of its TV audience since January

by Eric Boehlert | April 28, 2010

Should we blame it on the Massa Moment?

Will that Hindenburg performance soon be seen as the turning point for Glenn Beck : the pivotal moment when the Fox News show began to permanently leak viewers?

Who can forget the March day that will live in cable news infamy, when Beck invited embattled Democratic Congressman Eric Massa onto his show, for an entire hour, to blow the whistle on Democratic Party corruption? Or so Beck thought. Instead, Massa went on and on about tickle fights, and Beck became a laughing stock -- the butt of endless Geraldo-opens-Al-Capone's-vault jokes.

Prior to the Massa Moment, Glenn Beck was averaging 2.6 million viewers each week, and the show was still flying high. And in the short term, the wildly hyped Massa episode produced ratings gold, generating 3.4 million viewers that night, thank you very much. Long-term though, the effects have proven to be disastrous.

As I noted two weeks ago, Glenn Beck's ratings are down this spring. Now it's clear those declines are accelerating and there are no signs of a rebound. So what does that mean for Beck, Fox News, and the Tea Party movement?

First, the latest Nielsen low: Glenn Beck just posted another ratings low for this year. The new mark was set last Thursday when the show attracted 1.82 million viewers. The host's previous, non-vacation low for 2010 had been 1.97 million viewers. That low-ebb mark was set on April 9.

Based on the Nielsen numbers, here's a look at Beck's average daily viewership over the last five weeks. (Any weekend re-broadcasts, as well as weekday shows when Beck was on vacation, are not included in the tabulation.)

(The temporary spike shown above represents the day after health care reform passed in the Congress.)
Let's put Beck's ratings into context. Yes, in the world of cable news, his numbers are impressive, and virtually any host would be happy to have them. But look how far Glenn Beck has fallen recently. In late January and into February, the program was averaging 3 million viewers each week. And late last year, the show spent month after month flirting with that figure. Today, the viewership is trending around 2 million (Last week it was exactly 2.01 million viewers.) -- which means that in a span of just three months, Glenn Beck has lost nearly one-third of its television audience.

My take? Those missing one million aren't coming back. Not permanently anyway. Meaning, this is not a temporary hiccup for Glenn Beck, and the host is not likely to see a V-shaped recovery in terms of the show's ratings. Beck mania seems to have peaked. At least on TV. Will the show enjoy occasional audience spikes? Sure. But I doubt they will be sustainable.

And that has to be sending up all kinds of red flags inside Fox News, which already struggles to find any big-name advertisers to fill out the commercials on the controversial show. Keep in mind, there are more than 200 companies that have gone on the record as saying they will not buy ad time on Glenn Beck's show. Applebee's? No. AT&T? No. Bank of America? No. Best Buy, Campbell Soup, CVS, Ditech, Farmers Insurance Group, GEICO, General Mills, Johnson & Johnson, Lowe's, Nutrisystem, Procter & Gamble, Progressive Insurance, RadioShack, Sprint, State Farm Insurance, The UPS Store, Travelers Insurance, Verizon Wireless, Vonage, or Wal-Mart?

No.

Corporate America (aka the beloved free marketplace) wants nothing to do with Beck. (Sort of like the NFL wanted nothing to do with Rush Limbaugh last year.) Today, there are less than a handful of nationally recognized advertisers who appear willing to purchase air time on Glenn Beck. Think about the deep, deep discounts Fox News likely has to offer the remaining advertisers in order to get them to come aboard. (And the show is supposed to be a hit.) Now add to that equation the fact that Glenn Beck has lost 1/3 of its audience since January, and you can see where this is heading for Fox News.

How soft are Beck's current ratings? He's now posting the type of numbers that his show used to get when he was on vacation and somebody less famous stood in for him, like when he took a few days off in late March and his show averaged 1.9 million viewers. Beck's been back from his March vacation for weeks now, but his ratings are roughly the same as when he wasn't even there.

What's so amazing about the stampede away from Beck's show is that the political landscape has not changed during that time. In fact, according to press accounts, the Tea Party movement that Beck is so closely aligned with is supposedly in the midst of a surge in momentum and enthusiasm. So why is Glenn Beck losing viewers? It's odd because Beck's nemesis, President Barack Obama, is still in office and still doing his best, in the Beck worldview, to ruin America from within. Democrats are still in charge of Congress and still, in the Beck worldview, ripping up the Constitution. It's not like the evil Democratic threat is gone. Beck's bogeymen remain in place. It's just that one-third of his audience has lost interest and has checked out.

What's wrong with Glenn Beck? And why are viewers fleeing the show? Obviously, I'm not the target demo, but I will now admit that there were times last fall and in early winter when Beck's show did have a kind of demented, "Oh wow" factor to it, and I tuned in regularly just to see what he'd say and do next. The program did, at times, make for compelling television.

But today, making it through one of his insufferable, redundant shows feels like sitting through detention. The wow factor is long gone. Whatever originality the show once had has been replaced with a suffocating sense of sameness as Beck's expanding ego seems to have completely taken control of the operation.

Which brings us back to the Massa Moment, and the absurd broadcasting notion that Beck could generate interesting television for an entire hour while interviewing a congressman he barely even knew. i.e. recipe for disaster. And yes, Beck seems to know that the lecture-like shows he now produces, complete with unreadable chalkboards, don't make for good TV. Last week he jokingly conceded, "This is the worst television ever done. We're doing it every day, congratulations."

Beck appears to be trapped in something of a programming box. If he continues to just keep saying the same thing day after day, more viewers are likely to flee. If he goes long and risks his shows on ridiculous Massa-like interviews, more viewers are likely to be turned off.

But who knows, maybe it wasn't the Massa flame-out that drove viewers away. Instead, maybe it was Beck's hateful and irresponsible attack on Christianity, and specifically Catholicism, in which he urged parishioners to leave their church --during the Easter season -- if their church mentioned "social justice," which Beck announced was akin to communism and Nazism. Maybe that's what opened the Fox News floodgates, as offended viewers forced their way out.

Or maybe it's been a combination of Beck's incessant whining, married with his delusional conspiracies and his hateful rhetoric that simply do not appeal to people outside of his most hardcore, fanatical, Obama-hating followers. And maybe in the end that group only numbers 1-1.5 million viewers.
Or maybe the sagging numbers represent the let-down that came after Beck's flock watched health care reform pass; the same reform that the GOP Noise Machine had pronounced dead all winter long and that had no chance of passing. (Oops!)

Oh, and did I mention Beck's runaway ego? As Media Matters' Ben Dimiero wrote last week:

Capping a week in which he attempted to explain the "plan" he "think[s]" God wants him to "articulate," Glenn Beck informed listeners of his radio show today that "an individual" at the Vatican purportedly told him that we are entering a "period of great darkness" and that Beck himself was "wildly important" to the upcoming struggle.

Okaaay.

Whatever the possible causes of the exodus, Nielsen numbers don't lie about the concrete effects.
Jed Lewison recently pointed out at DailyKos that Beck's April ratings this year are actually slightly lower than April 2009, when the whole Tea Party movement was just getting off the ground [emphasis original]:

From April 1 to April 14, 2009 (the two weeks immediately preceding tea party 2009) the Glenn Beck show averaged 2.23 million viewers. 

Meanwhile, from April 1 to April 14, 2010 his show averaged 2.15 million viewers.
[...] 

That's not a dramatic decline, and Beck clearly still has a loyal audience. But his audience is not growing.

That's right, year-to-date, Beck's audience is not growing. Despite all the media attention, the cover stories on Beck and the endless reporting of the Tea Party movement he supposedly leads, over the last 12 months, Beck has not grown his TV audience. Well, he grew it, and then lost it again, while managing to lose 200 advertisers as well.


In fact, if the precipitous Glenn Beck ratings trend continues, the show will soon be regularly attracting many, many fewer viewers than it did 12 months ago -- an astonishing turn of events for a signature show that's supposed to be at the forefront of a political revolution.